Things to ponder over your refund

April 28, 2004

By DAVID BRODER

WASHINGTON - OK, so you've finished filing your income tax return for this year, and maybe you're one of the many expecting a nice refund check from the government. So you're feeling pretty good about the three years of tax cuts delivered by President Bush and the Republican Congress.

There are some skeptics who argue that the celebration is premature and unwise. We'll get to them in a moment. But first let me tell you that the Treasury wants you to know that you've done your country a great service by accepting these reductions in your federal tax bill.

The Treasury Web site features a "Tax Day Reminder: Millions of Individuals and Families Are Benefiting From Tax Relief Plan." As good a deal as this has been for taxpayers, the agency says, "the cumulative effect on the economy is just as strong, laying the groundwork for increased economic growth and job creation. … By the last quarter of 2003, the tax relief signed by President Bush had:

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"Reduced the unemployment rate by nearly 1 percentage point below where it would have been otherwise.

"Increased the jobs available to Americans by as many as 2 million.

"And increased the real GDP (Gross Domestic Product) by as much as 3 percent."

Treasury Secretary John Snow, in a speech earlier this month, pronounced himself "encouraged by what I see on the direction of our economy. We're clearly on the right path and there can be no doubt that President Bush's leadership on tax cuts has made the biggest difference. When combined with low interest rates, the Bush tax cuts are having the intended impact."

To bolster their claims, Snow and the president both have cited the encouraging figures that show the economy grew at a 6 percent rate in the last half of last year - the best such period in 20 years. But when the secretary says "there can be no doubt" about the beneficial effects of the Bush tax cuts, he ignores the skeptics who are out there.

The Center on Budget and Policy Priorities, a liberal think tank whose expertise commands broad respect, issued what it called "a comprehensive assessment of the Bush administration's record on cutting taxes." The authors, Isaac Shapiro and Joel Friedman, make two main points:

The tax cuts have reduced federal revenues to the lowest percentage of the economy since 1950, causing more than half the staggering $477 billion budget deficit.

Most of the benefits have gone to the richest households. Middle-income taxpayers are saving an average of $647 this year, boosting their income by a bit more than 2 percent, while millionaires are saving $123,592 - a bonus of more than 6 percent.

As for the stimulative benefits to the overall economy, the authors argue these tax cuts have produced relatively little "bang for the buck."

"For three years," they say, "the administration has been claiming its tax cuts would boost employment. But for three years, actual job growth has fallen far short of administration expectations." By their calculation, the job growth since the passage of the latest Bush tax cut in 2003 has been less than one-third that promised by the White House.

Reconciling all these conflicting numbers - or choosing among them - is beyond my capacity. But as Congress ponders the president's request to make all of the past three years' tax cuts permanent, one point stands out.

The middle-class tax cuts that Snow and others in the administration like to highlight should be extended. Members of Congress of both parties, including presumptive Democratic nominee John Kerry, agree that the new, low 10 percent tax bracket, the expanded child tax credit and the relief from the "marriage penalty" should be continued.

But if Shapiro and Friedman are correct, these three tax breaks "account for just one-third of the costs of tax cuts over time." These three provisions provide all but $100 of the tax cuts the typical middle-income family will receive this year. On the other hand, the wealthiest 1 percent are receiving an additional $33,672 in tax breaks from the other provisions Bush wants to make permanent - provisions that give almost no direct benefit to the middle class.

The implication is clear: Keeping the middle-class tax breaks and letting the others expire would bolster the budget and reduce the inequities in our tax system. That's something to ponder as you savor your refund.